CASE STUDIES OF SUPERMARKETS AND FOOD SUPPLY CHAINS IN LOW-INCOME AREAS OF THE NORTHEAST:

NEW YORK CITY STORE,NEW YORK Kristen S. Park, Miguel Gómez, Kate Clancy

Food Industry Management Program Charles H. Dyson School of Applied Economics and Management College of Agriculture and Life Sciences Cornell University, Ithaca, NY 14853

This research was supported by USDA-NIFA AFRI Grant #2011-68004-30057: Enhancing Food Security in the Northeast through Regional Food Systems, a joint project of 11 institutions led by the Northeast Regional Center for Rural Development.

E.B 2017-12OCTOBER 2017

It is the policy of Cornell University actively to support equality of educational and employment opportunity. No person shall be denied admission to any educational program or activity or be denied employment on the basis of any legally prohibited discrimination involving,

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Case Studies of Supermarkets and Food Supply Chains in Low-Income Areas of the Northeast: New York City Store, New York. By Kristen S. Park1,4, Miguel Gómez2, Kate Clancy3, Extension Bulletin 2017-12. Charles H. Dyson School and Applied Economics and Management, College of Agriculture and Life Sciences, Cornell University, Ithaca, NY 14853.

AcknowledgementsThis case study was conducted as part of a U.S. Department of Agriculture funded project titled “Enhancing Food Security in the Northeast through Regional Food Systems” (EFSNE). This seven-year research, education, and outreach project examines food production, distribution, and consumption in the Northeast U.S. (defined as 12 states from Maine to West Virginia and the District of Columbia) with the goal of understanding the potential for regional food systems to address food security challenges in the region. The project includes collaborators from 11 different universities and other institutions. As part of the project’s distribution, consumption, and outreach objectives, five urban and four rural study locations in the Northeast have been identified for community- and store-level analysis.

The authors would like to acknowledge the enormous contributions of the store participants. In addition we would like to thank the EFSNE project investigators for their support to the case studies and to Elaine Hill, Bobbie Smith, III, Irin Nishi, Susan Parker, Derek Simmonds, and Dan Kane for their interviews and data collection efforts.

This work was supported by USDA grant #2011-68004-30057

1 Extension Associate, Charles H. Dyson School of Applied Economics and Management, Cornell University2 Associate Professor, Charles H. Dyson School of Applied Economics and Management, Cornell University3 Food Systems Consultant4 Author contact: 475C Warren Hall, Charles H. Dyson School of Applied Economics and Management, Cornell University, Ithaca, NY 14853-

7801, ksp3@cornell.edu, +1-607-255-7215

Table of ContentsIntroduction ..........................................................................................................................................................................1NYC Store ..............................................................................................................................................................................3Supply Chains ......................................................................................................................................................................5 Product 1: Frozen Broccoli ...........................................................................................................................................5 Suppliers ...................................................................................................................................................................6 Regional Comparisons ...........................................................................................................................................8 Prospects for Expansion of Regional Food System ............................................................................................9 Product 2: Potatoes .....................................................................................................................................................10 Suppliers .................................................................................................................................................................10 Regional Comparisons .........................................................................................................................................11 Prospects for Expansion of Regional Food System ..........................................................................................13Key Lessons for NYC Store ...............................................................................................................................................15

Appendix .............................................................................................................................................................................17 Frozen Broccoli Industry Profile ................................................................................................................................17 Potatoes Industry Profile ............................................................................................................................................19

List of TablesTable 1: Demographic and Food Environment Statistics for NYC Store .....................................................................2Table 2: U.S. Store Operations versus NYC Store ............................................................................................................3Table 3: Percent of Store Sales by Various Departments.................................................................................................4Table 4: Allocation of Retail Price in NYC Store’s Frozen Broccoli Supply Chain .....................................................8Table 5: Food Miles and Fuel Use in NYC Store’s Frozen Broccoli Supply Chain .....................................................9Table 6: Allocation of Retail Price in NYC Store’s Potato Supply Chain ...................................................................12Table 7: Food Miles and Fuel Use in NYC Store’s Potato Supply Chains, Idaho versus Maine .............................12Table 8: An Illustration of Regional Value-Added Activity in the NYC Store Potato Supply Chain .....................14

List of FiguresFigure 1: Frozen Broccoli Supply Chain for NYC Store .................................................................................................6Figure 2: Potatoes Supply Chain for NYC Store ............................................................................................................10

NEW YORK CITY STORE, NEW YORK 1

IntroductionAs part of a collection of EFSNE projects that examined

distribution systems, 11 store case studies were conducted to gain

a better understanding of stores serving low-income areas and

their role in the regional food system of the Northeast. The cases

are an effort to record important characteristics of the participating

stores and their supply chain partners. This case describes a

supermarket and with it the supply chains of two of the eight foods

in the EFSNE project’s market basket, which served as a focal

point for many of its research activities.

Case study interviews were conducted from 2013 to 2015.

Fictitious names are used to maintain confidentiality of the case

study participants.

Place: Harlem Neighborhood, New York, NYThis case describes one retail supermarket in a neighborhood of Harlem, New York City, and two of its product supply chains. In 2013, the neighborhood1 has a population of 38,372 (Table 1) and a median household income of $47,318, substantially less than the median household income for New York City ($71,656) and for New York state ($58,687). The neighborhood is largely African American (59.7 percent) and Hispanic (20.9 percent). It also has a high poverty rate of 28.7 percent of individuals.

The U.S. Census Bureau reports 22 grocery stores, excluding convenience stores, and one convenience store in the neighborhood. This equates to 5.73 grocery stores, excluding convenience stores, and 0.3 convenience stores per 10,000 residents in the neighborhood (Table 1) compared to 8.42 and 1.17 respectively for New York boroughs. The concentration of food retailers per 10,000 persons is included in Table 1 to illustrate how this compares to county and state metrics.

Supermarkets and other grocery stores sell a variety of foods, such as canned and frozen foods; fresh fruits and vegetables; and fresh and prepared meats, fish, and poultry. Supermarkets are traditionally defined in the food retail industry as large grocery stores having $2 million or more in annual sales. Convenience stores or food marts (except those with fuel pumps) primarily engage in retailing a limited line of goods that generally includes milk, bread, soda, and snacks.

New York City Store, New York

1 The neighborhood is defined as the zip code that contains the store.

2 CASE STUDIES OF SUPERMARKETS AND FOOD SUPPLY CHAINS IN LOW-INCOME AREAS OF THE NORTHEAST

TABLE 1: 2013 Demographic and Food Environment Statistics for NYC Store.

Neighborhoodzip code New York City New York State

DEMOGRAPHICS Population and Age Population1 38,372 1,618,398 19,594,330 Median age1 34.3 36.6 38.1 Less than 5 years of agea,1 7.1% 5.0% 6.0% Average household size1 2.58 2.09 2.62Education High school degree or highera,1 82.0% 86.3% 85.4% Bachelor's degree or highera,1 40.7% 59.3% 33.7%Race and Ethnicity African American or Blacka,b,1 59.7% 17.2% 17.0% Hispanica,c,1 20.9% 25.7% 18.2%Poverty and Program Participation Poverty ratea,1 28.7% 17.7% 15.6% Food insecurity ratea,2 15.3% 13.5% 16.5% Share SNAP recipientsa,d,1,3 N/Ae 16.5% 16.3%Income Median household income1 $47,318 $71,656 $58,687FOOD ENVIRONMENT Grocery storesf,4 5.73 8.42 5.22 Convenience storesf,4 0.26 1.17 1.76 Warehouse clubs and supercentersf,4 0 0.01 0.07

Notes: A Percentage of entire population. B Alone or in combination with other races. C Of any race. D Calculated by dividing the number of SNAP recipients by the population. E Data not available at the zip code level. F Number per 10,000 people. Sources: 1 American Community Survey 5-Year Estimate, 2010 - 2014, copied from http://factfinder.census.gov/faces/nav/jsf/pages/community_

facts.xhtml on April 27, 2016. 2 Food insecurity, 2013, FeedingAmerica.org, downloaded from http://www.feedingamerica.org/hunger-in-america/our-research/map-

the-meal-gap/data-by-county-in-each-state.html on April 27, 2016.3 Small Area Income and Poverty Estimate, July 2013, downloaded from http://www.census.gov/did/www/saipe/data/model/tables.

html on April 27, 2016.4 County Business Patterns Database, 2013, downloaded from https://www.census.gov/econ/cbp/download/13_data/ on April 29, 2016.

Currently online at https://www.census.gov/data/datasets/2013/econ/cbp/2013-cbp.html.

NEW YORK CITY STORE, NEW YORK 3

NYC StoreThe store is an independently owned supermarket that belongs to a consortium of stores under the same banner but not under the same ownership. The current owner owns four other stores. The manager has been with the store for 12 years and also manages some of the other stores for the owner.2

The store has 22,000 square feet, of which about 20,000 is selling space. It has 60 full-time and 20 part-time employees. The store does about $17 million in sales per year and has about 18,000 customers per week. It buys products from about 50 suppliers.

Although the store is smaller than the average supermarket (Table 2), its weekly sales are similar. Its productivity of weekly sales per square foot is well over the average. Its weekly sales per full-time employee is estimated as $4,670 just slightly higher the U.S. average of $4,423.

Its productivity of weekly sales per square foot is well over the average.

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TABLE 2: U.S. Store Operations versus NYC Store

NYC Store 2013 U.S. averageStore selling space 20,000 sq ft 33,250 sq ftWeekly sales $326,923 $318,462Weekly sales per sq ft of selling area $16.35 $9.58Weekly sales per full-time equivalent employee $4,670est. $4,423

Source: Progressive Grocer, “81st Annual Report of the Grocery Industry.” April 2014.

The store sells a complete array of products with strong produce and fresh meat sales. These two departments, meat and produce, contribute more to the store than the average supermarket (Table 3). These departments are also important profit drivers with high gross margins. They are also very important to customers. According to the Food Marketing Institute’s 2014 Shopper Trends report, when consumers were asked the importance of features when selecting their primary store, they answered, “high quality fruits and vegetables” as the leading feature and “high quality meat” as the third feature behind “low prices.”

2 The store interview was conducted in 2013. Although this case study is written in present-tense, it is meant to provide a snapshot in time, and the authors make no claims that the data reflect anything other than the store’s situation at that time.

4 CASE STUDIES OF SUPERMARKETS AND FOOD SUPPLY CHAINS IN LOW-INCOME AREAS OF THE NORTHEAST

TABLE 3: Percent of Store Sales by Various Departments

Percent of Store SalesDepartment or Category NYC Store Industry average

%Produce 12.4 11.3Fresh Meat (incl. poultry) 15.1 13.8Dairy 14.7 9.0Canned fruits and vegetables 2.4 1.0Frozen foods 7.6 6.4Bread (loaf/bagged, not bakery goods) 2.6 3.0

Source: Progressive Grocer, “Consumer Expenditures Study: Stretching Dollars”. July 2014; Store interview.

The store’s overall gross margin is 38 percent. Gross margin is the difference between the purchase price and selling price divided by the selling price and is an important measure of the margin available to pay for all operations above and beyond the cost of the product. The 2015 median gross margin for supermarkets reported by the Food Marketing Institute is 28 percent.3

The manager said that sales in the last three years have stayed the same, although he sees sales growing in the next three years. He sees the store being in business in 10 years.

The manager identified taxes, variability of demand from users of SNAP, the Federal policy change to reduce benefits, and food prices as external factors that impact his store’s ability to stay in business, although he indicated that they are not major limitations.

The manager also reported that some factors have a slight effect on the store’s ability to sell more regionally produced foods, such as higher expense, procurement and negotiation costs, availability of labor, and proximity to supplier.

The manager listed two factors that have a slight effect on the store’s ability to sell more healthy foods: higher expense and procurement and negotiation costs.

3 The Food Retailing Industry Speaks 2016. The Food Marketing Institute. Arlington, VA 22202.

NEW YORK CITY STORE, NEW YORK 5

Market basket items –Frozen Broccoli and PotatoesNational Brand 1 is the store’s leading brand of frozen broccoli, and it represents 70 percent of the store’s frozen broccoli sales. Along with National Brand 1, the store sells frozen broccoli from regional, ethnic, and second-tier national brands.

Sixty percent of the store’s frozen broccoli sales are for broccoli with sauce, and the remaining 40 percent are for broccoli without sauce. The prices are the same, with or without sauce.

The leading variety of potatoes at NYC Store are russets, although round white potatoes are also popular. About 80 percent of the store’s total potatoes are from Idaho with the “Grown in Idaho®” seal. In addition to the russets and round whites, the store sells red and gold and organic potatoes.

Losses in the store for potatoes are very low, about one percent, and damage is the most common reason for losses.

Supply Chains As part of this case study, we trace the supply chains of two products from our market basket sold by NYC Store to determine the sources of these foods and the extent of regional food system participation.

Product 1: Frozen BroccoliBroccoli production in the Northeast is quite small and is all for fresh consumption. Frozen broccoli production and processing is handled almost exclusively overseas. Although frozen broccoli is not produced in the Northeast, companies that repackage frozen loads of broccoli for retail and institutional sales do exist in the region.

Figure 1 depicts the general supply chain for NYC Store frozen broccoli florets. Starting at the store and tracing back the supply chain, the boxes upstream indicate the percent of the downstream member’s total purchases. Both wholesalers that provide frozen broccoli to NYC Store are located in the Northeast.

6 CASE STUDIES OF SUPERMARKETS AND FOOD SUPPLY CHAINS IN LOW-INCOME AREAS OF THE NORTHEAST

FIGURE 1: Frozen Broccoli Supply Chain for NYC Store

Note: Shaded boxes represent supply chain members located in the Northeast Region. Numbers in boxes represent the percent of the next member’s supply.NA=Not availableSource: Author’ calculations based on case interviews.

Wholesaler 2 40%

Wholesaler 1 60%

NYC Store

Consumer

National Brand 1 % NA

National Brand 2 % NA

Mexican Producer-Processor

Other Brands % NA

Suppliers

Wholesaler 1Wholesaler 1 has been supplier of NYC Store for nine years, and it supplies 60 percent of the store’s frozen broccoli. Orders are placed every other day via phone, e-mail, or online, and product is delivered in one day. The average order volume is 15 pounds and is delivered on a straight truck along with other products. The frozen broccoli is a small percent of the delivery. Delivery is not charged separately.

Prices are set by supplier. No contracts are used. Payment is expected in 21 days. Credit is given for any rejects. Wholesaler 1 collaborates on marketing and provides services for ads, merchandising, market share data, and the web.

NYC Store thinks very highly of Wholesaler 1, particularly

NEW YORK CITY STORE, NEW YORK 7

for its product diversity, quality products, timeliness of delivery, trustworthiness, and stock availability. Wholesaler 1’s prices are the same or similar to other suppliers.

Wholesaler 2The store gets the remaining 40 percent of its frozen broccoli from Wholesaler 2, and has been purchasing from this wholesaler for four years.

Orders are placed weekly via phone and online, and product is delivered in three days. The average order volume is 15 pounds and is delivered on a straight truck along with other products. The frozen broccoli is a small part of the delivery. Delivery is not charged separately.

Wholesaler 2’s prices are comparable to Wholesaler 1’s. Prices are set by the supplier. No contracts are used. Payment is expected in 21 days. Wholesaler 2 does not collaborate on marketing services. Credit is given for any rejects.

NYC Store 1 rates Wholesaler 2 well as a supplier but not as highly as it does Wholesaler 1.

National Brand 1The National Brand 1 frozen broccoli is grown and processed in Mexico. Almost all frozen broccoli is commercially produced and processed overseas. The U.S. imports frozen broccoli primarily from Mexico, Guatemala, Ecuador, and China. Over 80 percent of U.S. processed broccoli consumed, most of which is frozen, is imported.

National Brand 1 is a leading frozen vegetable brand in the U.S. with a market share of 25.7 percent of frozen vegetable retail sales. National Brand 1 has two frozen vegetable processing plants in the U.S. that process other frozen vegetables; however, all of its frozen broccoli is imported, primarily from Mexico and Guatemala.

National Brand 1 is still highly dependent on the leading customer retailers. Wal-Mart, including all its divisions, and the rest of National Brand 1’s 10 leading customers account for about 60 percent of National Brand 1’s sales.4 The company reports that private label is a significant competitor.

4 National Brand 1’s Form 10-K, Annual Report

8 CASE STUDIES OF SUPERMARKETS AND FOOD SUPPLY CHAINS IN LOW-INCOME AREAS OF THE NORTHEAST

Regional ComparisonsIn this section we examine one frozen broccoli supply chain for NYC Store.

Table 4 presents the price margin5 per pound received by each member of this supply chain. In addition, it shows the percent of total or proportion of the retail price received by each member, using the member’s price margin. For example, the store’s price margin per pound is approximately 41.8 percent of the retail price. We note that the margin is what is left to pay for all other business expenses and profits, including marketing and transportation. It is not an indication of profitability.

The frozen broccoli supply chain starts with National Brand 1, which purchases the broccoli from a processor who has contract growers in Mexico. Insufficient data were collected to estimate the producer-processor and wholesaler price margins or shares of the retail price.

TABLE 4: Allocation of Retail Price in NYC Store’s Frozen Broccoli Supply Chain1

Supply chain segment Price margin ($/10 oz) % of retail priceNational Brand 1 producer-processor NA NATransportation 0.11 4.5Wholesaler 1 NA NANYC Store 1.00 41.8Total Retail Price 2.39 100.0

1Frozen broccoli florets shipped from Mexico. NA=Not availableSource: Author’s calculations based on case study and expert interviews

Table 5 shows the distance and fuel used to get frozen broccoli from the processor to the retailer. The estimated total fuel used to transport a hundred pounds of packaged frozen broccoli from Mexico to Wholesaler 1 via truck is 1.0 gallons. The remaining transportation from Wholesaler 1 to NYC Store uses an estimated 0.2 gallons per hundredweight.

5 Price margin is defined here is the sale price minus the purchase price.

NEW YORK CITY STORE, NEW YORK 9

TABLE 5: Food Miles and Fuel Use in NYC Store’s Frozen Broccoli Supply Chain

Supply chain segment Food milesTransport

miles1Truck

capacity Fuel use2

Fuel use per cwt shipped

number cwt gallonsNon-regional: Mexico to NYC Store 1Celaya, Mexico to Wholesaler 1 2,491 2,491 400 415 1.0Wholesaler 1 to NYC Store 194 388 150 35 0.2All segments3 2,685 2,879 450 1.3

1 We assume trucks from the distribution center are returning empty.2 Miles per gallon (mpg) vary by segment. Trailer trucks used for shipping from the processor to the wholesaler’s distribution center have a

capacity of 40,000 pounds and obtain 6 mpg. Transport from the wholesaler to the store is in straight trucks with a capacity of 15,000 pounds and obtain 11 mpg.

3 May not sum to total due to rounding.Source: Author’s calculations based on case interviews.

Prospects for Expansion of Regional Food System: Frozen BroccoliWe define a regional supply chain as one where the product is produced, or grown, in the region. Therefore, we can say that a regional supply chain for frozen broccoli does not exist for NYC Store. The store’s leading brand of frozen broccoli originates in Mexico and Guatemala. We use the Mexican source to represent the international supply chain (see Figure 1).

Although insufficient data were collected to estimate the value-added activity performed in the region, we do know that the activities performed by wholesaling and retailing are conducted in the region. In general, these activities are in receiving, storing, delivery, and sales.

Prospects for expansion of regional production of frozen broccoli on a scale to enter grocery retailing are limited.

The store's leading brand of frozen broccoli: originates in Mexico and Guatemala.

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10 CASE STUDIES OF SUPERMARKETS AND FOOD SUPPLY CHAINS IN LOW-INCOME AREAS OF THE NORTHEAST

FIGURE 2: Potato Supply Chain for NYC Store, NY

Note: Shaded boxes represent supply chain members located in the Northeast Region. Numbers in boxes represent the percent of the next member’s supply.NA=Not availableSource: Author’s calculations based on case interviews.

Product 2: PotatoesFigure 2 depicts the general supply chain for NYC Store’s potatoes. Starting at the store and tracing back the supply chain, the boxes upstream indicate the percent of the downstream member’s total purchases.

Produce Wholesaler100%

NYC Store

Consumer

Idaho growers 80 % Other growers WI, WAAroostook, ME growers

Produce WholesalerProduce Wholesaler supplies 100 percent of NYC Store’s potatoes. Although the store manager believes 80 percent of the store’s potatoes come from Idaho, he also believes the wholesaler procures regionally from the Northeast.

Produce Wholesaler is located five miles from NYC Store. It supplies a full house of fruits and vegetables with organic and conventional produce and Latin and Asian vegetables and tropical roots. Customers include independent and chain supermarkets, foodservice and other wholesalers. It also offers “local” product, from growers located in Long Island, upstate New York, New Jersey and Southern Connecticut.

NEW YORK CITY STORE, NEW YORK 11

As well as providing quality produce the wholesaler provides merchandising staff and expertise and training for store produce staff.

Orders to the wholesaler are placed via phone and fax every day and product is delivered within one day. The average order placed by NYC store is about 350 pounds and is delivered on a straight truck along with other products. Potatoes average around five percent of the produce delivery. Separate delivery costs are not charged.

Prices are set by the supplier. No contracts are used, and payment is expected in 30 days. Produce Wholesaler does not collaborate on marketing plans or services. Credit is given for any rejects.

NYC Store rates Produce Wholesaler well in all supplier characteristics including pricing, payment terms, quality, timeliness, proximity, trustworthiness, and stock availability and very well in having a diversity of products available.

Regional ComparisonsIn this section we examine part of the potato supply chain for NYC Store. Eighty percent of the store’s potatoes are grown in Idaho. We trace russet potatoes from Idaho in one of the supply chains. When in season and available, the store also carries round white potatoes from Maine. We trace round white potatoes from Maine in the other supply chain. Only these two supply chains of the total are represented.

Table 6 shows the price margin for each member of these supply chains and the allocation of retail revenues. The price received by Maine grower-shippers is greater than the price received by the Idaho grower-shippers.

The retailer charges the same price for 5-pound bags of both round white and russet potatoes, and it is charged the same price for each by Produce Wholesaler. Therefore, in both supply chains, the retailer receives the same share of the retail value for both round white potatoes and russets.

The Produce Wholesaler benefits much more from Maine’s round white potatoes having the larger gross margin; however, as mentioned, a large majority of the store’s potato sales are for russets rather than round white potatoes. We can infer that perhaps the wholesaler’s demand for round whites is less than that for russets and wholesaler overhead would be spread across fewer sales of round whites.

Transportation costs for the Idaho supply chain are greater than for the regional supply chain from Maine, as might be expected.

12 CASE STUDIES OF SUPERMARKETS AND FOOD SUPPLY CHAINS IN LOW-INCOME AREAS OF THE NORTHEAST

TABLE 6: Allocation of Retail Price in NYC Store’s Potato Supply Chain

Regional Non-regionalMaine growers(Round whites)

Idaho growers(Russets)

Supply chain segment Price margin ($/5-lb. bag)

% of retail price Price margin($/5-lb. bag)

% of retail price

Growers 0.781 26.0 0.671 22.5Transport 2 0.21 7.0 0.67 22.5Produce Wholesaler 3 0.60 20.1 0.24 8.2Retailer 1.40 46.8 1.40 46.8Total Retail Price 2.99 100.0 2.99 100.0

1 USDA, Agricultural Market News, reported shipping price from respective growing areas.2 We use the following calculation to obtain the transportation supply chain segment: Trucks transporting potatoes from the producer-

processor are trailers with a capacity of 40,000 lbs. Freight cost/truck capacity = transport.3 Transportation from wholesaler to store is included in the Produce Wholesaler price margin. Source: Author’s calculations based on case interviews and USDA, Agricultural Marketing Service.

Table 7 depicts estimates of the distance and fuel used to get potatoes from the producer to the retailer. Transportation from potato suppliers in Idaho to the Produce Wholesaler consumes the most fuel per hundredweight of product. The fuel used to transport potatoes from Maine to the store is almost one fourth that from Idaho.

TABLE 7: Food Miles and Fuel Use in NYC Store’s Potato Supply Chains, Idaho versus Maine

Supply chain segment Food miles Truck miles1Truck

capacity Fuel use2

Fuel use per cwt shipped

number cwt gallonsRegional: ME to NYC StoreME grower to Produce Wholesaler

592.0 592.0 400 99 0.25

Produce Wholesaler to NYC Store

5.3 10.6 150 1 0.01

All segments3 597.3 602.6 100 0.25Non-regional: ID to NYC StoreID grower to Produce Wholesaler 2260.0 2260.0 400 377 0.94Produce Wholesaler to NYC Store

5.3 10.6 150 1 0.01

All segments3 2265.3 2270.6 378 0.951 Truck miles are equal to food miles when potatoes travel over 150 miles. Trucks on trips longer than 150 miles will return with a backhaul.2 Miles per gallon (mpg) vary by segment. Trailer trucks used for shipping potatoes from Idaho and Maine to Produce Wholesaler have a

capacity of 40,000 pounds and obtain 6 mpg; straight trucks used to transport potatoes from the wholesaler to the retailer have a capacity of 15,000 pounds and obtain 11 mpg.

3 May not sum to total due to rounding.Source: Author’s calculations based on case interviews.

NEW YORK CITY STORE, NEW YORK 13

Prospects for Regional System Expansion: PotatoesAlthough fresh potato consumption per capita has been declining for the past two decades, potatoes are still a leading item in the produce department and are the most consumed vegetable by weight and eighth by sales. The most popular potato variety is the russet which accounts for roughly half of all grocery store potato sales. The round white potatoes are the next most popular with the reds, golds, fingerlings, and other varieties making up the rest of the potato category.

We define a regional supply chain as one where the product is produced, or grown, in the region. Therefore, we can say that the supply chain that starts with potatoes grown by Maine potato farms is a regional supply chain for NYC Store. Not enough data were collected, however, to calculate the value-added activity supplied by this regional supply chain (Table 8).

Although the majority of the store’s potatoes come from outside the region, some members including Produce Wholesaler and NYC Store are located in the Northeast, and all their value-added activities are conducted in the region.

We assume that the margins as a percent of retail price (see Table 6) is a proxy for the amount of value-added activity produced by each supply chain member. We then weight the percent of retail price by the amount of potatoes the supply chain provides (Figure 2) to estimate the value-added retained by supply chain members.

Since Produce Wholesaler and NYC Store are both located in the region, we add their weighted value-added estimates to obtain the extent of regional value-added activity produced by the Idaho supply chain.

Table 8 summarizes the extent of members’ participation in the supply chain.

14 CASE STUDIES OF SUPERMARKETS AND FOOD SUPPLY CHAINS IN LOW-INCOME AREAS OF THE NORTHEAST

TABLE 8: An Illustration of Regional Value-Added Activity in the NYC Store Potato Supply Chain

Percent of retailer’s potatoes supplies Value-added1

Value-added retained by

supply chain member

Extent of regional value-added activity2

Supply chain segment % % of retail price % %Regional: ME Grower-Shipper3 to Produce Wholesaler to NYC StoreME Grower-Shipper NA 26.0 NA Transportation 7.0 NAProduce Wholesaler 100 20.1 NA NYC Store 100 46.8 NA All segments NA NA NANon-regional: ID Grower-Shipper to Produce Wholesaler to NYC StoreID Grower-Shipper 80 22.5 18.0Transportation 22.5 18.0Wholesaler 100 30.74 24.6 NYC Store 100 46.8 37.5 All segments 80 100.0 80.0 44.0Added-value contained in Region

NA

Note: Shaded rows indicate supply chain members located in the Northeast.1 This column contains the % margins of retail revenue from table 5 above.2 This column captures all regional activity in the NE within each supply chain (excluding supply chain activity outside of the northeast).3 For this regional supply chain, ME Grower-Shipper represents ME farms selling to Produce Wholesaler, (See Figure 2). 4 Transportation percent of retail price is added to wholesaler percent of retail price as a function of the wholesaler5 By default, the retailer percent is 100 percent.NA=Not availableSource: Author’s calculations based on case interviews.

NEW YORK CITY STORE, NEW YORK 15

Key Lessons for NYC StoreNYC Store is a small, independent supermarket located in a Harlem neighborhood in New York City. It purchases most of its supplies from Wholesaler 1 but also purchases from other suppliers. The product supply chains described in this case are frozen broccoli and potatoes.

The Store and Its EnvironmentEffect of size and economies of scale• NYC Store is a small supermarket of approximately 20,000

square feet of selling space and solely owned. The store carries a full line of groceries and perishables.

• Like most independent stores, it purchases most of its products from wholesalers rather than directly from the manufacturer. Independent stores are often smaller companies that procure primarily from wholesalers, intermediaries between manufacturers and the store. In comparison, self-distributing supermarkets are large enough and have enough stores that they usually purchase directly from manufacturers. This allows the larger companies to buy in bulk and achieve discounts provided by the manufacturer.

• The size of the store itself can affect operations costs for delivery, replenishment, and labor. Deliveries of smaller volumes are more costly and less efficient. Wholesalers and distribution centers often have to break apart full cases to pick individual items for small orders, and transportation is more expensive for small drop sizes.

• Despite the fact that NYC Store is smaller and purchases primarily through wholesalers, it significantly outperforms the average supermarket store in some key metrics—weekly sales and weekly sales per square foot. Sales from its produce and meat departments also are above average.

• Wholesaler 1 and Produce Wholesaler provide highly satisfactory service. The high sales volume, limited storage space in the store, and smaller delivery trucks in the city requires frequent service. Because produce is fast moving and perishable, Produce Wholesaler deliveries every day, sometimes twice a day, in order to keep the store stocked.

Market Basket Supply ChainsEffect of regional production/industry• The Northeast region produces potatoes but does not produce

any frozen broccoli.• The cost of labor has drawn frozen broccoli production to a

number of countries in Latin America where production and manufacturing labor are both relatively inexpensive. Frozen broccoli packages are labeled by country of origin, although this labeling is in small print and is not prominently displayed.

Despite the fact that NYC Store is smaller and purchases primarily through wholesalers, it significantly outperforms the average supermarket store in some key metrics.

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16 CASE STUDIES OF SUPERMARKETS AND FOOD SUPPLY CHAINS IN LOW-INCOME AREAS OF THE NORTHEAST

• The majority of potatoes the store sells are from Idaho. It may be that because the NYC metropolitan area is a huge consumer, the store’s produce wholesaler is engaging with suppliers who can supply them large quantities year round, without the wholesaler having to piece together a number of supply chains from different sources.

• While the Northeast does produce potatoes, the farms, in general, are not large enough to supply supermarket chains let alone large city wholesalers. The Northeast produces only an estimated 38 percent of the amount of potatoes consumed in the region.

Extent of regional value-added activity• Frozen broccoli is grown and processed outside the region.

Despite this, some value-added supply chain activities are conducted in the region by Wholesaler 1 and by the store itself. In addition, limited amounts of regionally grown potatoes are sold by the store. Handling, storage, selling, and transportation activities are conducted in the region, but we were unable to gather and measure this information.• We see that even for supply chains in which the origin is

very far away there is value-added activity going on in the Northeast. This is important because this translates into economic activity due to the distribution and retailing system which happens in the Northeast.

Effect of geography/distance• The fuel use for frozen broccoli and potatoes are significantly

different. Estimates of fuel use for Idaho potatoes and Maine potatoes are 0.95 and 0.25 gallons per hundredweight respectively. Maine potatoes require almost one-fourth the fuel as Idaho potatoes.

• Estimated fuel use for frozen broccoli produced in Celaya, Mexico is 1.3 gallons per hundredweight. • The biggest competitive factors for the Northeast farms are

most likely cost of transportation and proximity to market. These have been the biggest factors for decades, but because of increased transportation costs, government regulations on trucking, and deteriorating transportation infrastructure, these factors have become more important in the cost equation.

NEW YORK CITY STORE, NEW YORK 17

Appendix

Frozen Broccoli Industry ProfileAccording to the USDA Economic Research Service (ERS), 2.6 pounds of frozen broccoli were available per capita in the U.S. in 2015 (Table A.1.). In 2015, 5.9 pounds of fresh broccoli, almost twice that of frozen, were available per capita. In 2013, the last year the USDA ERS collected retail price data, retail prices for fresh broccoli florets were also higher than for frozen broccoli.

TABLE A.1: Broccoli—Average Retail Price Per Pound and Per Capita Consumption

Form Average retail, 2013 Per capita availability, 2015price per pound pounds

Fresh - 5.9 Florets $2.57 - Head $1.64 -Frozen $1.87 2.6

Sources: USDA, ERS. “USDA ERS - Fruit and Vegetable Prices.” Accessed February 10, 2017. https://www.ers.usda.gov/data-products/fruit-and-vegetable-prices.aspx#.Ua5GqJxZ56I%20. and USDA, ERS Food Availability (Per Capita) Data System. Accessed January 19, 2017. https://www.ers.usda.gov/data-products/food-availability-per-capita-data-system/.

While approximately 80 percent of the 2015 fresh broccoli supply in the U.S. was produced domestically, 82 percent of frozen broccoli consumed in the same year was imported.6 Indeed, in 2015 broccoli accounted for about 30 percent of all frozen vegetable imports. Frozen broccoli imports come primarily from Mexico, Guatemala, and Ecuador (Table A.2.).

6 “USDA, ERS Food Availability (Per Capita) Data System. Accessed January 19, 2017. https://www.ers.usda.gov/data-products/food-availability-per-capita-data-system/.

18 CASE STUDIES OF SUPERMARKETS AND FOOD SUPPLY CHAINS IN LOW-INCOME AREAS OF THE NORTHEAST

TABLE A.2: Frozen Broccoli, Cut/Reduced in Size: U.S. Imports from Selected Countries, 2015

Trade partner Volume % of total volume Value % of total value1,000 pounds percent 1,000 dollars percent

Mexico 444,974 78.9% 247,165 80.9%Guatemala 62,019 11.0% 28,440 9.3%Ecuador 38,334 6.8% 22,153 7.2%China 15,568 2.8% 5,299 1.7%TOTAL 564,283 305,379

Source: USDA, ERS. “Data by Commodity - Imports and Exports.” Accessed February 10, 2017. https://data.ers.usda.gov/reports.aspx?programArea=veg&stat_year=2008&top=5&HardCopy=True&RowsPerPage= 25&groupName=Vegetables&commodityName=Broccoli&ID=9457#P09f71a77e64d48e8abb51897a0ab1c10_9_384.

From 2011-2015 the volume of frozen broccoli imports remained steady while the total value grew (Table A.3.).

TABLE A.3: Frozen Broccoli Imports: Volume and Value

Volume Value1,000 lbs. $

2011 607,354 291,400,870 2012 584,789 288,213,977 2013 515,093 264,692,431 2014 573,756 295,000,0002015 564,293 305,379,000

Source: USDA, ERS, “Data by Commodity - Imports and Exports.” Accessed February 10, 2017. https://data.ers.usda.gov/reports.aspx?programArea=veg&stat_year=2008&top=5&HardCopy=True&RowsPerPage=25&group Name=Vegetables&commodityName=Broccoli&ID=9457#P09f71a77e64d48e8abb51897a0ab1c10_9_384.

Data on domestic broccoli production do not differentiate production for frozen versus fresh use, and USDA does not report broccoli production statistics by state. But in Atallah, et al. 2014, authors estimated broccoli acreage and yield for several states using USDA statistics and local verification.7 Overall, California and Arizona dominate production, but several states in the Northeast also have significant summer and fall production by higher numbers of smaller farms (Table A.4.).

7 Atallah, Shady S., Miguel I. Gómez, and Thomas Björkman. “Localization Effects for a Fresh Vegetable Product Supply Chain: Broccoli in the Eastern United States.” Food Policy 49, Part 1 (December 2014): 151–59. doi:10.1016/j.foodpol.2014.07.005.

NEW YORK CITY STORE, NEW YORK 19

TABLE A.4: Estimated Broccoli Acreage and Yields in Eastern and Western States.

Broccoli acreageNumber of

farms

Yield(21-pound

boxes/acre)

Spring Summer Fall WinterMaine 0 3,300 2,200 0 71 500Maryland 0 145 145 0 40 400New Jersey 0 69 69 0 74 450New York 0 400 400 0 270 450Pennsylvania 0 100 100 0 218 550Total Eastern U.S. 0 4,014 2,914 0 673 n/aArizona 5,000 0 5,000 15,000 44 600California 32,650 32,650 32,650 32,650 416 800Total Western U.S. 37,650 32,650 37,650 47,650 460 n/aTotal U.S. 39,741 36,824 42,069 48,706 1450 n/aNorth Eastern share (%) 0 11 7 0 46 n/aWestern share (%) 95 89 89 98 32 n/a

Source: Atallah, Shady S., Miguel I. Gómez, and Thomas Björkman. “Localization Effects for a Fresh Vegetable Product Supply Chain: Broccoli in the Eastern United States.” Food Policy 49, Part 1 (December 2014): 151–59. doi:10.1016/j.foodpol.2014.07.005.

Potato Industry ProfileAccording to the National Agricultural Statistics Service (NASS) Survey, in 2015 the U.S. produced 441,205 hundredweight (cwt) of potatoes for both fresh use and processing (Table A.5). Idaho produces approximately 30 percent of total U.S. production. Although potatoes can be grown year-round in parts of the U.S., potatoes harvested in the fall account for the majority, 92 percent, of production.8

The Northeast region produced 23,759 cwt of potatoes, totaling 5.4 percent of U.S. production. The states in the Northeast that report production are Maine, Maryland, Massachusetts, New York, Pennsylvania, and Rhode Island.

8 USDA, NASS. “Potatoes: 2015 Summary,” July 2016. http://usda.mannlib.cornell.edu/usda/current/Pota/Pota-09-15-2016.pdf.

20 CASE STUDIES OF SUPERMARKETS AND FOOD SUPPLY CHAINS IN LOW-INCOME AREAS OF THE NORTHEAST

Table A.5. 2015 Potato Production in the Northeast

State Production Value 1,000 cwt $1,000

U. S. 441,205 3,865,538Northeast Region 23,759 252,684 Maine 16,160 163,216 Maryland 792 8,316 Massachusetts 1,098 11,419 New York 4,144 50,557 Pennsylvania 1,484 18,253 Rhode Island 81 923

Source: USDA, NASS. “Potatoes: 2015 Summary,” July 2016. http://usda.mannlib.cornell.edu/usda/current/Pota/Pota-09-15-2016.pdf.

Although potato production yields in the Northeast are significantly lower than the U.S. average, higher potato prices help reduce the impact of the lower yields (Table A.6).

Table A.6. 2015 U.S. and Northeast Potato Statistics

Source Variable U.S. NortheastNortheast,% of U.S.

1 Production 1,000 cwt 441,205 23,759 5.4%1 Value $ thousands $3,865,538 $252,684 6.5%1 Acres harvested 1,000 1,054 77 7.3%1 Yield per acre cwt 418 275 65.8%1 Value of production 1,000 $4,237,284 $252,684 6.0%1 Price received $ per cwt $8.76 $11.15 127.3%2 Utilization per capita, fresh lb 34.02 Utilization per capita, processing lb. 79.7

NOTE: Northeast totals may be low because several states do not report. Sources:1 USDA, NASS. “Potatoes: 2015 Summary,” July 2016. http://usda.mannlib.cornell.edu/usda/current/Pota/Pota-09-15-2016.pdf.2 “USDA, ERS, Food Availability (Per Capita) Data System. Accessed January 19, 2017. https://www.ers.usda.gov/data-products/food-

availability-per-capita-data-system/.

NEW YORK CITY STORE, NEW YORK 21

In 2015, 25 percent of the U.S. potato crop was for fresh use while 62 percent was for the processing market.9 With respect to retail sales, potatoes were the third highest selling vegetable item in 2015 (Table A.7).

Table A.7. Top 5 Retail Vegetable ItemsU.S. Retail Produce Sales for 52 weeks ending 12/26/2015

ItemAverage sales

per store per weekPackaged salad $3,607Tomatoes $3,005Potatoes $2,656Cooking vegetables $2,519Value-added vegetables $2,519

Source: “FreshFacts on Retail: 2015.” United Fresh Produce Association and Nielsen Perishables Group, January 2016.

Retailers keep potatoes in the store year round, stocking different varieties and selections of bagged and bulk (loose) potatoes. Potatoes can be stored, usually by the producer or packer, for most of the year, with most potatoes being harvested in the fall. In order to maintain stock, retailers will source potatoes grown in different regions. Purchasing from different growing regions provides risk insurance in case of regional crop failures.

9 USDA, ERS, Food Availability (Per Capita) Data System. Accessed January 19, 2017. https://www.ers.usda.gov/data-products/food-availability-per-capita-data-system/.

EB No Title Author(s)

OTHER A.E.M. EXTENSION BULLETINSFee

(if applicable)

Case studies of supermarkets and food supplychains in low-income areas of the Northeast:New York City Store, New York

Park, K.S., Gomez, M. and K. Clancy2017-12

Case studies of supermarkets and food supplychains in low-income areas of the Northeast:Madison County Store, New York

Park, K.S., Gomez, M. and K. Clancy2017-11

Case studies of supermarkets and food supplychains in low-income areas of the Northeast:Kent Store 2, Delaware

Park, K.S., Gomez, M. and K. Clancy2017-10

Case studies of supermarkets and food supplychains in low-income areas of the Northeast:Kent Store 1, Delaware

Park, K.S., Gomez, M. and K. Clancy2017-09

Case studies of supermarkets and food supplychains in low-income areas of the Northeast:Charleston Store, West Virginia

Park, K.S., Gomez, M. and K. Clancy2017-08

Case studies of supermarkets and food supplychains in low-income areas of the Northeast:Baltimore Store 2, Maryland

Park, K.S., Gomez, M. and K. Clancy2017-07

Case studies of supermarkets and food supplychains in low-income areas of the Northeast:Baltimore Store 1, Maryland

Park, K.S., Gomez, M. and K. Clancy2017-06

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Schmit, T.M. & R.M. Severson2017-05

Dairy Farm Business Summary, New York LargeHerd Farms, 300 Cows or Larger, 2016

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Maloney, T.R. & Eiholzer, L.2017-03

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Ifft, J., Freedland, J., and Wells, M.2017-02

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